Finally, of course, external costs of freight transport are entered in nature’s account.
These operations accomplish the corrections to social costs in the case of freight.
10.4.6 The market for business trips
It might be debated who the users of business trips are, but at least the businesses are the ones that pay. Since they can reclaim the VAT and business trips are never final consumption, the rules for entering taxes and charges in the social accounting table are exactly the same for business trips by public transport as for freight.
The difference between business trips by car and private trips by car concern the value of time and the driving costs. Leaving aside the value of time, the difference in perceived driving costs may be that the VAT on fuel, oil, repair etc. may be reclaimed.
(Arrangements where the car expenses are covered by the employee and reimbursed in full by the firm are common, but we propose to ignore them here). In the case where VAT can be reclaimed, there will be no VAT from fuel and other driving costs to enter in the government account. Otherwise the rules are the same as for private car trips.
10.4.7 Infrastructure investments and management
We assume that infrastructure investment and management are the responsibility of the government. The actual work may be carried out by private firms or by government agencies as the case may be. The social cost should be the same.
If we operate more than one government account, there might be taxes to pay from the one to the other, and in case there are budget constraints on the both of them, it is best to enter this explicitly. If private firms do the job, the value added tax is entered as a payment in the account of the responsible body and as revenue to the central government. Of course this is a transfer between two government agencies, mediated through the private firm. Taxes on inputs except labour are treated in the same way and thus are entered both as payable by the construction firm and as revenue to the central government. Taxes on labour contribute to the expenses of the construction firm but not to the revenue of the central government.
If the job is carried out by government agencies themselves, there will be no VAT.
With respect to other commodity taxes and labour, the situation is the same as when the job was outsourced to private firms.
tax revenue by the full amount of commodity taxes.
How taxes and charges are to be treated when user benefits are calculated will be obvious from the text: We use perceived costs, including the taxes and charges that the user actually has to pay. If there are unperceived costs other than the transfers to other sectors, these are deducted from the user benefits in the same column (sooner or later they will have to be paid). How to enter taxes and charges in the government and transport operator columns should be clear from Table 10.2. The only additional remark that needs to be made is that if we suppose there is a non-zero shadow price of public funds, the government column will be multiplied by 1 plus the shadow price.
The same goes for operators’ columns to the extent that the government takes responsibility for their budgets.
Table10.2. Entering taxes and charges in the social accounting table Enter in government account…
Activity of the user
VAT
Other commodity taxes
Enter in other accounts…
Trip purpose private, mode car
On driving costs On driving costs Parking and tolls in operator’s account Trip purpose private, mode
public transport
On fares On PT company inputs
excl. labour
Fares excl. VAT in PT company account Trip purpose business,
mode private car
Nothing On driving costs Parking and tolls in operator’s account Trip purpose business,
mode public transport
Nothing On PT company inputs
excl. labour
Fares excl. VAT in PT company account Trip purpose freight Nothing On freight company
inputs excl. labour Rates excl. VAT in freight company account
Housing Nothing Nothing Rent in landlords’
account
Land Nothing Property tax in special
cases
Nothing Investment and
management
Nothing if government is only a single sector
Nothing if government is only a single sector
The approach taken here builds on Norwegian official guidance (Finansdepartementet 2000) with respect to the definition of social cost and on the Common Appraisal Framework with respect to the social accounting framework. To derive the practical rules for entering taxes and charges in the social accounting table, we made use of both the concepts of willingness to pay/willingness to accept and the concept of social cost. The latter in turn was shown to be derivable from the former. Thus the termino- logy that a CBA could be based either on willingness to pay or on social cost is misleading.
It might be thought that since the users of business trips and private trips will in fact face different perceived costs on the same service, there is a need to adjust just one of them to arrive at the true social cost of the service. In fact, there is a need to adjust both of them, but to a different degree. Applying the rules here, we arrive at the same social cost of the same good or service, regardless of whether it is used by private households or firms. The difference is not in the SC but in the user benefits (WTP – P), where the difference in P really constitutes an inefficiency brought about by the tax system.
Regardless of whether this inefficiency is present or not, the aggregate social benefit SB always equals aggregate WTP – SC. But the level of aggregate SB is affected by P, since individual WTP’s below P are not counted. In the market, individual user benefits UB = max(WTP – P, 0), that is why prices and taxes matter.